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Trans-Pacific Partnership

Free trade agreement would dwarf NAFTA

Aaron Weddle

Aaron Weddle

© World Trade Center Alaska

The Trans-Pacific Partnership is an Asia-Pacific regional free trade agreement currently under negotiation between the United States and about a dozen countries surrounding the Pacific Ocean. If completed, this trade bloc would dwarf NAFTA in value of U.S. international trade. For Alaskans, this could be an important development because Alaska typically does about 70 percent of its annual overseas exports to Asia.

The TPP is designed to liberalize trade and investment among its partner nations, which currently consist of: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam. It is anticipated that additional Asia-Pacific nations will join in once the agreement is finalized.

 

Japan and China

Two principal Asian economies are not part of TPP negotiations: Japan and China.

Japan is undergoing strong domestic political debate on whether to join the TPP. The greatest opposition concerns protection of its heavily subsidized—and politically influential—agricultural sector. In the past, this tension has led Japan to require agricultural exceptions in its free trade agreements. Former Prime Minister Yoshihiko Noda was in favor of joining the TPP and had hoped to finalize Japan’s negotiations by the end of 2012. Japan was on track to join TPP negotiations but, in part because of the economic effects of the March 2011 earthquake, decided to delay membership. Japan recently held elections in which Noda’s Democratic Party of Japan lost power to the Liberal Democratic Party headed by Prime Minister Shinszo Abe. It remains to be seen whether Abe will have the domestic political support needed to move forward with joining the TPP. His support may rest on whether he can negotiate tariff exceptions to protect Japan’s agricultural sector. Japan is also negotiating a trilateral free trade agreement with China and South Korea; however, the escalating tensions with China over disputed Senkaku islands may shift Japanese political support toward a U.S. led trade agreement and away from one involving China.

China has thus far not been included in TPP negotiations. There are a number of reasons for China’s exclusion but several are worth noting here. China is concerned that some provisions of the agreement would adversely affect its state-owned companies, and that the TPP is part of U.S. efforts to undermine China’s regional influence. Some Chinese analysts argue that the true U.S. motives behind promoting the TPP are to contain China’s growing economic influence in Asia and to create a U.S. dominated trade bloc that would compete with the Association of Southeast Asian Nations. Further complicating the matter, China has its own free trade agreement with ASEAN called the ASEAN-China Free Trade Agreement, which is currently the third largest trade bloc in the world, behind the EU and NAFTA. A strong TPP trade agreement could give member countries, which make similar products to China, an economic competitive advantage in the region.

 

Evolved Agreement

The TPP evolved from a series of free trade agreements among four Asia-Pacific nations—New Zealand, Chile, Singapore, and Brunei—that entered into an earlier agreement in 2005 known as the Trans-Pacific Strategic Economic Partnership. In 2008, President George W. Bush announced U.S. intentions to join TPP negotiations. U.S. participation was initiated in part due to the collapse of the World Trade Organization Doha Round that year. In 2009, President Barak Obama affirmed U.S. intentions to continue these negotiations.

According to the President’s Office of the Trade Representative: “With the addition of Mexico and Canada, the TPP countries will be by far the largest export market for the United States. U.S. goods exports to the broader Asia-Pacific totaled $895 billion in 2011, representing 60 percent of total U.S. goods exports. U.S. Exports of agricultural products to the region totaled $98 billion in 2011, 72 percent of total U.S. agricultural exports. U.S. private services exports totaled $205 billion in 2001 (latest data available), 39 percent of total U.S. private services exports to the world. By comparison, NAFTA countries (Canada and Mexico) were the top two purchasers of U.S. exports in 2010. (Canada $248.2 billion and Mexico $163.3 billion.)”

From the perspective of U.S. exports, the TPP is likely to have more of a strategic and political importance rather than producing a dramatic expansion of trade. The U.S. already has bilateral free trade agreements between Australia, Canada, Chile, Mexico and Singapore. However, U.S. involvement in the TPP adds significant diplomatic weight to the success of negotiations and in influencing its final architecture. American participation is also a signal of the Obama Administration’s efforts to demonstrate a renewed emphasis on Asian affairs. In 2009, during a speech in Tokyo, President Barack Obama stated that: “The growth of multilateral organizations can advance the security and prosperity of this region. I know that the United States has been disengaged from these organizations in recent years. So let me be clear: those days have passed. As an Asia-Pacific nation, the United States expects to be involved in the discussions that shape the future of this region and to participate fully in appropriate organizations as they are established and evolve.”

 

Easing Political Resitance

The fact that the U.S. already has free trade agreements with five of the member states might ease political resistance in the U.S. Congress where a majority support of both houses will be necessary for final passage. Unlike a treaty, which requires a two-thirds approval of the U.S. Senate, Congress permits entry into a trade agreement negotiated by the president with a simple majority vote of both the House and Senate. One crucial element to passage of the TPP is Trade Promotion Authority, also known as Fast Track. It allows a trade agreement to be voted on quickly without amendments that might otherwise slow down or stall its final passage. In exchange, Congress is given an expanded role in the president’s trade negotiations. This authority expired in 2007 and has not yet been renewed.

The TPP’s draft language is currently being negotiated confidentially by member states, which held the 15th round of talks in Auckland, New Zealand last December. The next round of negotiations will take place March of this year in Singapore. From information that is publicly available, it appears that the TPP both dramatically reduces duties and tariffs, as well as establishes among its members standards of: rules of origin, customs procedures, government procurement, intellectual property, labor and environmental standards, and investment and financial services.

While the details of these provisions are in flux, the final product will likely have a significant impact on the economies of some member states. Much of the controversy over TPP has to do with the investment and financial services portion of the agreement. For example, the TPP will create a framework by which a corporation can seek economic redress from a foreign government by appealing to a TPP member tribunal rather than suing within a national court.

 

Impact on Alaska

At this point in time, it is unclear how the TPP will ultimately affect Alaska, but WTCAK will keep Alaskans up to date as negotiations unfold. Some of Alaska’s top trade partners will likely be impacted by the TPP. As Alaska contemplates liquefied natural gas exports to Asia, one issue merits attention. Applications for LNG exports require approval by the Department of Energy. Under federal law, licenses for LNG exports to countries that share a free trade agreement with the U.S. go through an expedited process. This could have an impact on future efforts to export Alaska LNG to Japan and other countries that become party to the TPP.

Our current focus on emerging markets in Asia parallels the development of the TPP. We have been closely watching Southeast Asian nations such as Singapore, Malaysia and Vietnam. In 2010, WTCAK organized and conducted Alaska’s first trade mission to the region, which included a stop in Singapore. We will continue our work to identify opportunities as they emerge as a result of TPP negotiations. Several negotiating nations share common development trends including rapid urbanization, substantial infrastructure expansion and a growing middle class. We foresee an increased demand for Alaskan resources and expertise as these development trends in the region continue to rise.        

 

Aaron Weddle is a Business Development Consultant to World Trade Center Alaska. He has a Master of Science in Global Supply Chain Management from the University of Alaska Anchorage.

This article first appeared in the February 2013 print edition of Alaska Business Monthly magazine.

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